TimesTalks DealBook: Stephen A. Schwarzman

good evening everyone I'm Tom cool Agha executive creative director of the New York Times live conversation series times talks I'm delighted to welcome you to tonight's times talks deal book event featuring Andrew Ross Sorkin and conversation with financier and philanthropist Stephen Schwarzman I want to give special thanks to tonight's sponsor Accenture and now it's my pleasure to introduce katinka wallström senior managing director Financial Services North America for Accenture katenka we are proud to sponsor tonight's times talks deal book event I know we're all excited to hear the discussion between Andrew and Steven so thank you all for joining us this evening tonight I wanted to spend a minute and only a minute on Accenture is commitment to innovation innovation might be a buzzword these days but for us innovation defines the way we bring intelligence and insights to help our clients every day this includes the 800 million that we spent in R&D every year and the close to 7,000 patents and patent applications that we have in areas like cyber and cloud and artificial intelligence and blockchain and the hundreds of researchers that spend their time anticipating and staying ahead of business and tech trends that we believe will change the world to be truly innovative we believe that it starts with a culture of equality at Accenture a core tenant is our focus on inclusion and diversity to deliver creative ideas to bring diverse perspectives we need lots of different skills at the table this commitment starts at the top and we expect our leaders at all levels to help create and sustain a culture of equality where everyone can advance and feel empowered to be their best both professionally and personally we've said both gender equality goals such as achieving a gender balance workforce by 2025 reaching these schools will support us as we continue to bring fresh perspectives to help solve our clients challenges and discover new opportunities so with that thank you for joining us and now back to Tom to introduce tonight's panel [Applause] thanks katenka were very pleased to present Stephen H Schwartzman the chairman CEO and co-founder of Blackstone and author of the new book what it takes lessons in the pursuit of excellence moderating tonight's event is Andrew Ross Sorkin New York Times columnist and the founder and editor at large of deal book he's also a co-anchor of CNBC's Squawk Box and the author of the best-selling book too big to fail the inside story of how Wall Street and Washington fought to save the financial system and themselves reissued last fall on the 10th anniversary of the 2008 financial crisis be sure to pick up a complimentary copy complimentary signed copy of both what it takes and too big to fail following tonight's event courtesy of Accenture and now please join me in giving a very warm welcome to our moderator Andrew Ross Sorkin and our special guests Stephen a Schwartzman thank you everybody he's watching everybody thank you all for being here this evening and thank you to Stephen Schwarzman for sitting with us we're gonna have a conversation and at some point we're gonna open this up and try to make this an interactive conversation Steve is well you all know who Steve is but he is now an author and I will tell you I have known and covered Stephen Schwarzman now for some 20 years we were just discussing some articles that he liked and didn't like over the many years and I thought I knew who Steve Schwarzman was but when I read the book I actually feel like I now know you in a very different way so we're gonna go through a lot of that and then we're gonna get to some of the news of the day and what's going on in the world and in the economy but let me just give you a little bit of background about Stephen Schwarzman if you don't know it Stephen Schwarzman grew up in the Franklin section of Philadelphia where he worked at Schwartzman curtains and linens how old you 10 years old yep about that absolutely 8 8 years old even worse I should he writes in the book that he at that age started a lawn mowing service with two part-time employees my younger twin brothers they got half the revenue for doing the work and I kept the other half for securing clients the business lasted three full years before we had an employee strike he pitched his dad on turning this linens company into the next Bath Bed Bath & Beyond only to be vetoed so that didn't happen but he is now and I would say arguably the most significant and consequential financier on Wall Street today and in addition to that has turned has become really one of the largest philanthropists in the country and in between all of that he's become somewhat of a geopolitical consigliere as a whisperer both to President Trump and the Chinese and I want to talk to you about that as well and how that's going but here's where that comes this is a complete surprise but but here's what I want to start the conversation because I trying to interesting about this book is actually trying to understand you and what actually motivates you and and what led you to this place and we're talking behind back in the green room but here's I just want to read you this because there are moments in this book where Steve Schwarzman comes across as what I would say is remarkably vulnerable even insecure times and yet at the same time you are always almost always supremely confident so here I want to tell you he gets a job at DLJ and he says quote I would cower in my office hoping no one noticed me scared I would be found out as ignorant or incompetent I must have been the biggest buyer of antiperspirant on the east side of Manhattan but then you go on to say that when you got this job you were offered $10,000 that was going to be your your the opening the opening offer or I think that was the aw that was the offer and you said to the gentleman who had called you I need ten thousand five hundred dollars and he says do you what do you mean and you say I need ten thousand five hundred dollars because I heard there's another person graduating from Yale making ten thousand dollars and I want to be the highest-paid person in my class so explain this dichotomy of somebody who is both anxious and nervous and I should tell you there's moments throughout this throughout this book you say I arrived at Harvard feeling the same way I arrived at Yale socially isolated suspecting that brilliant people are elsewhere and then you go up to the Dean and you tell them that you've got teachers who can teach students who can't learn and an outmoded curriculum it was all true but but explain this this this disconnect between this idea of of being both I think insecure at some level and then confident that at almost every other level that you could somehow figure it out and fix it yeah at the DLJ thing I you know I don't know what I was thinking I just wanted to be the top person and you know they offered me 10,000 there was one other guy who had ten five and I said you know they built Donaldson it's wonderful man and III said I need ten five and he said why and I said because I want to be the top person graduating from Yale you know financially so he said well that doesn't concern me which is a totally reasonable thing and I said well it concerns me and he said yes I know but it's ten thousand and and I said well I won't take the job and then what happened he said you got to be kidding I said no I'm not kidding that that's what I want I said it doesn't make much difference to you it's five hundred dollars and it's like really super important to me he said I really don't care I said well then you know we're not gonna be able to do anything so he said well let me think about it so he called me back in like three days and he said okay ten five but I I don't know what got into me frankly but but I you know I was important to me and you know I I put myself in situations that you know I our explicable to me I can usually explain them to someone else as to why I wanted and if it's rational you know usually people will do it but but explain where this comes from because there's a lot of asking you know even a 10 years old you know you were getting paid 10 cents an hour I think your grandfather and you asked for 25 cents I will then go on to tell you that when you were at Yale this is fascinating you decided and this is what I want to guess but I want to get to the hood CIPA part where did you where did you come up with the hoods but I asked for these things you said the most glaring need I sensed among the Yale's undergraduate class was that they they lacked companionship so you invented the Davenport ballet society so that women would come to Yale and then you started calling the heads of the dance departments at all seven sister colleges I just I'm trying to understand that this this sort of zest and Hut's but to think like that this was possible oh well I always try and think about what's possible what's the best thing that's possible and and that makes sense and would excite everybody and and once I figure that out that's the hard part then the doing isn't so hard all you do is you call them they accept or they reject if they reject it's their problem if they accept that's good they buy into the vision so so part of all these things is is you know sort of seeing in an ideal world what is the best possible thing that you could create and people will come to that okay well let me let me ask you about this by the way you you got the Davenport Ballet Society to be up and running at school I should you write about this this is it fascinating to me too you say my final year I decided to take on the bigger issue for all of the Yale men this is that there was a 268 year-old parietal rule that forbade women from staying overnight in a dorm room I was dating a woman at a local college so for me it was a it was as much a personal issue as a community if you and you managed to somehow have the rule overturned yes what made you think you could do that I I could barely discuss this in a politically correct environment but but I sort of looked at that and it wasn't working for me and and and it was the 1960s second half where you know sort of everything was possible so so I knew if I went to the administration they'd say no like they had for 278 years and they'd say you were you were basically getting in the way of other students quiet enjoyment of their you know their their rooms and studying and so forth so I I said well okay I know it's coming at me all we have to do is put together a survey that that of every objection that a student can have to to getting rid of parental rules and fortunately Yale was pretty centralized at 11 colleges so I just got one person to stand outside each dining room and give the forms out and then I figured they're gonna go in and eat they're gonna you know fill out the form and put in a basket I got all those tabulated him and a friend of mine was the deputy editor of the Yale Daily News Reed Hundt who ended up as head of the FCC of all things and I said Reedy I got this survey and it shows that ninety nine point I think it was six percent of all Yale students couldn't care less whether there were any parietals I said we got to do something he said I'll put it on the front page you know four days later it was gone 278 years because there was nothing to object to so all you have to do is is basically get into somebody else's mind and and figure out what's motivating them or or stopping them from thinking the way you do defeat those types of that type of logic and you know more or less they don't give up okay so to that end by the way there's a line in here and I actually read this line to my I have two twin boys 4:29 this fall and I actually this weekend I stopped I was reading the book and I said guys I wanted to read you a sentence because this is the this is the sentence of the book that they were looking at the book and they said who is this guy on the cover of the book and I'm trying to explain who he is and you write there is nothing more interesting to people than their own problems if you can find out what they are and come up with solutions they will want to talk to you no matter what their rank or status in life yep whatever you think you knew that I think you realized that junior high school and there was you know was something going on at my school Huntington junior high school that was all messed up and it was like difficult for everybody in the school so I figured out what a solution would be and I just went to see the principal which is like a big deal when you're in the eighth grade and I said dear mr. Norton I said you know it's sort of the following situation sort of a mess and I think this is what we ought to do with it and he basically said that's a good idea I hadn't thought about that you know let's let's do it and so basically analyzing these logical messes and figuring out what you can do works pretty easily and you can do this with anyone and even if they're like famous people because you know they're in the news and you know what they're worrying about you know like if they're the head of a country and you know they're just call them you know that and there's something going on that's clearly troubling and you you find some way to talk with them they'll definitely focus on things because obviously they haven't fixed it and it's it's if it's front page in the news and if you can offer some good suggestions they'll take them on board and discuss them and you know it's it's not like there's difference in status of any type it's really just about dealing with with you know what's on their mind right and you know everybody's looking to solve their problems right so it's not it's not that big a deal it just seems to be a big a deal if you're standing there with somebody who's like a big deal and you're not how much do you think you're driven by what I might describe is a healthy and it can be debilitating but I will call it a healthy insecurity and the reason I ask is you know when you started your firm your left Lehman Brothers and you start your firm with with Pete Peterson this is Blackstone and Blackstone was not working in the first six months at all and you write in the book you say I felt I was failing on every count I was overwhelmed with self-pity Wall Street loves nothing more than watching other people fail truer words never been spoken to see Pete and me who had been so powerful of Lehman so sure of our success take a beating would have given many people pleasure I couldn't let it happen how much do you think that's what this is about for you well that's certainly one once anybody decides to do something particularly with their life it's it's a must do I mean you can't fail and you try and think really carefully before you do something and if it's well conceived then it's not working it just means you have to move it around or you know maybe you're too early the world isn't ready for you and so you just suck it up and go back again and and you you can never give up once you make that commitment if if if what you're doing is completely ill-conceived you know eventually you throw in the towel but but that's a long way and you can't let things that that throw you back you know there's any number of bad things that happen to nice people who are trying to accomplish something the world isn't necessarily waiting for your arrival or you know ready to change most people just by what they say don't like changing they they're comfortable in their space so so if if you're in affected like it I guess they call them now disruptors or something you don't think you're disrupting anybody you think you're helping them and they don't respond then you know it's normal to be discouraged but you have to fight go back and see men another six months and you can just never stop we said well I have a question of failure because even though your success today it wasn't as I said always that way and there's a particular transaction that you did early on in your career at this new firm companies called edge coma you can tell everybody the details but it didn't work out it actually failed quite spectacularly and you went and visited with one of the in and when you left that meeting he writes I I wasn't capable I wasn't competent I was a disgrace I felt tears welling up and my face turned red and hot and I had to force myself not to cry I said I understood and we would do better in the future and as I found my way to the parking lot and again this goes back to not failing I vowed to myself this was never gonna happen again tell everybody what wedded to Edgecombe wasn't what and how it changed you because that actually was another piece of you that I didn't really appreciate you know this was truly terrible this was our third deal and you know I had one of our partners we had no processes I had never made an investment before and I raised some huge amount of money with Pete we were the third biggest in the world at that time and you know one partner thought this deal was a good thing and another one heard we were looking at it and he came in to see me he said it was going to go bankrupt because was just making inventory profits disguised as real profits and that went steals steal distribution business when steel prices went down as much as we were earning we would lose that and more on the way down and the company would go bankrupt so King Solomon here you know sort of very self congratulating picked the person who brought the deal who was the optimist and within six months we couldn't pay our interest on the debt and ultimately we lost all of our money and this was this was beyond dramatic I don't like failure I'm not used to it we all have it but this was terrible I mean in my family nobody ever raised their voice so so that's one reason I'm able to do some interesting things because I can hear things with little nuances just because of the way I was raised and here's some man screaming at me and I'm sitting in front of him and you know what a fool I am and the fool he is for giving me money and you know this was this was horrific it was shameful and I'm sort of sitting there taking it than I realized I can't I can't I can't take it anymore it's so awful and my faith starts getting red I realized I'm going to start crying now how can I know I'd be crying in front of this guy so you know I just sort of sucked it up and you know got through the thing and I walked out in the parking lot and I said it's never gonna happen again we're never gonna lose money I'm gonna figure out a way and it was the most important thing in the evolution of the firm besides raising the capital and we figured a way out which is terrific and we still basically do it today where instead of one great man or woman you know sitting at a table with everybody coming in and being interrogated by that person you know historically what we've done is we use everyone at the table we don't have anybody who's a paid audience and you know just sort of to watch and and if you get like seven really bright people interrogating whoever brings a proposal to D risk it to talk about the risks how bad can it be and other things that the team didn't didn't think about by the time you reach the end of those eight people boy those people who brought something in this is like a really really interesting experience and you learn so much then you set them back again for the stuff that they didn't think about then they come back and they we have procedures you write everything up you put the risk factors and the other things and and then you do it again to them and by the time you do that three times everybody knows everything about this one proposal we can figure out all the risks and it's completely impersonal you know when you're walking in that room that's gonna happen to you you will be filleted it's fun and and it's it's it's amusing it's a contest and so the team itself is infinitely better prepared because they know what's gonna happen and we do that and then when we make a decision it's with those two or three key variables and that's usually if something blows up and it's bad deal that's why ninety percent of the chance that's what it is so the team itself doesn't have the risk of failure because the failure won't be theirs it's that we've miss assess things so it leads people ironically to be very psychologically comfortable because one they know what's going to happen to them it's all just it's an exercise to learn and protect them protect the firm and it's not dependent upon that one great person who normally in most organizations they take care of that interrogation and when they turn that team down they go away they don't like it if that team comes on another deal if he does if he or she doesn't like it they turn them away the people like it even less the third time they come if it's a month or two later and they're turned down then it's almost like open warfare and the fourth time they come almost no matter what they have they'll be approved because the person making the decision just can't stand the psychic pain of the passive aggressive nature of the smart people you know who are trying to get something approved and and that's where most bad deals come from they come from an organization that's worn down in decision-making and they know they're making a marginal decision so we get rid of that and we don't let that happen and by by instituting that we took my liability which is not so gifted not so smart and and surrounding myself with people who are gifted and smart and as a team we just attack this not attack people we never attack a person ever we're attacking content and it's regarded as such and it's very successful I love watching it now I don't have to do so much and you know that everybody's trained to do that it's fun let me ask a couple other questions about the firm and its success and then I want to get into a couple of other issues some of the news and I want to talk about philanthropy as well it's a philosophical question because you and I debated this like 20 years ago the issue of size and scale down the investment world and the prevailing view twenty years ago it's not ten years ago if not now is that size is the enemy of performance and you have become one of the biggest firms in the world and you were the first firm to go public and when you when you write by the way about fundraising you say if you're gonna go to all the bother of raising five to ten million dollars you may as well save yourself some legwork and ask for 50 to 100 million dollars and and I was thinking about that how much of that is about just the legwork piece and how much it is about that the idea that you think you can actually do better with more those both that there's a certain efficacy and not wasting your time and you know if somebody will give you a hundred million why take ten you know like it was more efficient but the only reason you want that is because you can do something with it and you know I I guess when we were talking 20 years ago I said I didn't agree with the premise that that large basically you know I think you did because you were smaller well no we were never small we were smaller but we started out as the third biggest in the world that's not so bad for a start-up you know there other people been doing this for a lot longer plus we didn't know anything so you know that gets points and and we've always been at the large end of everything we do usually the largest and what that does is enables us to do certain things there's a lot of money if you haven't noticed we run huge deficits and and somebody's printing that money and and so you know there are a lot of people who've gotten that money to go into competition with us in in certain areas and what you're always looking for is an advantage or some type of moat to protect what you're doing because there are no patents in finance there's no protection anybody can duplicate it so if you're you know sort of in effect can do the largest things in the to the extent that they are on offer and it's sensible to do by definition you won't have much competition at all you know if you do something in the middle they're probably you know four hundred to a thousand companies that can compete with you and and so you you also get this these amazing flows and you become the friend of financial intermediaries because we we have the largest fee payer in the world and one thing you learn about intermediaries they like fees they like to be paid and if you can pay them more than anyone that makes you more popular no matter how fundamentally unattractive you are so so so so this this is like a mutually reinforcing system right and you know like today I think we announced something for like five billion dollars so some company that we were buying in the real estate and business and and you know it's like nobody competed with us you know it's hard to put that much up on one deal and we've got two other ones going on and we just agreed on something else that's a secret just because it is you know that needed a billion six of equity the number of firms that can just put that up and not worry about it is what how many not much so we use that as a as a as a advantage okay so in the news right now then yes what do you make of what masa son at Softbank is doing and the reason I ask is he's got a hundred billion dollar fund he's got another fun we got this we work IPO we're not an IPO coming and a lot of people look at that size and scale and say that's that we're not sure that's going to work well it has to be deployed but in a sensible way well masa did is is actually you know sort of like yeah I may regret I say this but it was almost genius like because what he did is he and new capital market so so you used to have these little venture comm companies all of which were at the top and were famous maybe they would have a billion dollars of capital so so they couldn't really finance anything big they did these little things but some of these little bitty companies have grown up into these big things that are hemorrhaging as their cashes they're growing and so you either go public which itself isn't big enough to fully fund the equity of that company you can't borrow money because the thing has no cash flow typically and and so what masa did which is like really genius law because he said you know what there's this whole layer above venture capital that if I raise a hundred billion dollars I can write any size check there's nowhere else these companies can go and so I will own the whole emerging venture business and he does now now that doesn't mean that every decision that's made because of that is wise and I'm not speaking for that I'm sure there'll be an array of outcomes but G's positioning yourself as the only place to go the only place to go for you know all of these do you think it's going to work depends what what you pay for what you get and whether you've analyzed right that the thing can really keep going and on that I can't opine on it you know I'm sure there'll be some you know sort of significant disappointments but but if you can get some right you know that that's the way he's historically made a lot of money on Alibaba and Yahoo and so forth so so you know it's it's to be determined but I'm just talking as somebody who creates things myself I looked at that and I said that was like when Mike Milken created the junk bond market didn't exist didn't exist in 1982 and he sat around he came up with the whole thing now everybody you know in finance of a certain type you know either invested in junk bonds or issues them if you're in the buyout business and was one man's my genius it's very much like Massa I'm asked is what do you make of the reputation or image of the world of private equity and I will tell you because I remembered very well and you do too in 2007 and you make reference to it in the book but only only in a paragraph there were a handful of things that happened you in public you had a sixty famous 60th birthday which became a symbol of the times and there became what became known as the Blackstone tax never went into effect I think you might have even blamed me at one point for promoting the tax you write by the way about the birthday because I was looking for it a little understated you said it was a great night despite unfavorable media coverage which created some controversy around the event I stand by that but no really and especially today I'm curious because there is of course this big discussion in America about the idea of inequality and where we are and sort of how you think the private equity industry fits into that well there about four or five questions buried in there I think the private equity industry is as as in effect suffered from from some of the practices in the 1980s when it was mostly a cost-cutting you know kind of business and you know starting you know sort of 15 20 years ago that really changed because as prices go up you can't make money by cutting prices the only way you can make money is is by making the asset that you grow grow really fast and the only way assets grow fast is you have to invest money in them and if the objective is is to grow faster because then your exit is much higher than when you buy it and your earnings are much higher that's the way that the business has to be done what happens at that time it simultaneously as you're growing you're hiring more people so it's a really positive Selma's game and and some people look at this and you know realize that at some point sometimes you have to change what the company is doing and and you know some people you know don't don't remain employed but you hire other people to take those jobs so there's some turnover maybe in a first year but the objective is to build a much bigger much better company so you know are our companies at Blackstone grow significantly faster than the SP and we end up earning around after fees you know i'd prolly double the SP and and you know we've created somewhere around a hundred thousand jobs in the last twelve years and i look at this and say what's wrong with this picture and you know sometimes you know people will say well this company owned by the private equity industry went broke well you know if you're in the retail business now you don't have to be in the private equity business to go broke you've got plenty of help you know and and if you're in the news and so somebody else to say well you know there's a company owned by private equity in the newspaper business and you know something about this and you know how many newspapers have done well over the last fifteen years and and so they take one example meanwhile you know 40 newspapers go broke that have nothing to do with private equity but it's convenient to point this out going through the financial crisis you know private equity companies didn't go broke any more than unleveraged companies a bit of a proof of concept I would say that was the global financial crisis supposed to make a mess and and it didn't which surprised people and and so I I look at a lot of this and say part of this is leftover part of it is people don't understand exactly what we do and we are obviously terrible marketeers explaining what we do I had a very funny conversation years ago with mrs. Roy mrs. Merkle who would just become head of Germany and and you know there was some adverse publicity and she has to see me so they were hell you locusts at the time yes they're calling us locusts so so I went to meet with mrs. Merkel it was a small meeting you know it's myself and she had somebody with her who's now head of the central bank of Germany and so so she wanted to know about private equity and she said I don't even know if I should do this but but she said I heard you are locust and with the Chancellor of Germany I can't believe this right so and she's doing with the fingers yeah so so so I said I said mrs. Merkel I am good locust so you want to know how this stuff works so she said he said basically tell me what you do so I told her what we do and she said that sounds very logical she said so if it is so good why are not all company's private equity companies because she was a physicist so she's very logical and I said well some of them just don't fit if they need massive expenditures like mining companies and certain other things but others of them would profit from doing that she said she said well he I didn't know anything about this but now now I understand so you know it's like being a prophet to people who don't want to listen but but this is actually a very good thing and you know it involves 11 million workers in the United States now out of 151 million people who have jobs so it's not real big in the private equity industry yes yeah it's not that you know it's not that big can we engage in a talk about about carried interest because you know I have my views if you would like to and you have yours forth on this Andrew well I just I just listening to you no no you don't have to listen to me I would just say to you and I just want to understand the argument because I have I've struggled as you know for more than a decade you know how to understand the argument because I feel like that your tax structure on a personal basis is more incentivized than my tax structure I happen to be a w-2 employee in life you may actually I don't know if you're wo you're part of a partnership so I don't know how that's it exactly structure but the point is that that that your income to some degree is more advantaged if you will than mine irrespective of our own investments meaning I could I could have investments in the stock market you could have investments in the stock you get investments in your things I'm happy to capture the capital gains that way but on the actual work product this is one of the few industries where the work product counts in part as a capital gain that'd be my argument what's yours well I can never win an argument with Andrew let's start from there but this has only been going on for almost a hundred years in our debate world as old as I am I'm not that old and and neither are you they carried interest has been treated as capital gain for you know since the 1930s so so this debate has has has become politicized it was always a capital gain and and and so so it's a politicized thing now which which you can always take any side of that so I actually don't want to spend my evening fighting a hopeless fight with Andrew but you know you you should recognize that you know for any of us who work in New York City who live in New York City with the kind of incomes we have carried interest capital gains ordinary income in tax rates are somewhere between 45 and 50 percent you know this this is like a lot there's no avoidance there's no sort of odd behavior that you know some people have we don't you know we have like the incomes the income and that's the range of what we pay so it's it's it's a lot of money because we do well financially but in terms of paying taxes it's very substantial okay that's a longer debate and we will continue to have it over the many years but we're not gonna do it right now I do want to talk a bit about philanthropy and then I want to get to where we are on the economy and and your relationship with Donald Trump and the Chinese at the same time but I wanted you I want to do philanthropy first sure you have managed to give away a hundred million dollars to start the Schwartzman's program which is a roguelike scholar program for us and Chinese students you've devoted 150 million dollars to Yale to create a culture and Student Life Center their 350 million dollar recently to MIT for a new college of computing related to AI and then 188 million dollar donation to Oxford University in the UK for humanitarian humanities humanities hub is what it is plus plus New York Public Library listen your Public Library or a hundred and thank you Tony so my question is I assume you get asked if not every hour at least every day for money how do you decide where to give when to give what's the thought process and all of us and what's your next big one yeah that's it is weird people you know come to see you and they have all kinds of projects if they can find their way in the door you know you usually you know you have like a gatekeeper or they you know you ask to see something and people just don't you know pop in like it's an Avon lady you know just can I have a hundred million dollars please you know just it doesn't work like that but but you know everybody has things that interest them sometimes you don't know exactly the form that will take unless somebody puts a proposal or an idea in front of you and you know I I care about certain things like we all do I care about too many things you can't do them all at once and I've learned what I like doing is creating new institutions I you know I give a lot of money to existing institutions but my really big donations come to create something whether it's Schwartzman scholars and in at Chen hua University and China to to take students from around the world including Chinese mainland students to basically try and teach them about China teach the Chinese about what's going on around the world to form a cadre of future leaders to try and protect the world for the kinds of stuff that appears to be going on now I mean that's a pretty abstract concept but when you experience the populism that we all had after the financial crisis it became pretty clear somebody was going to go after you know sort of the prosperous foreigners which were viewed as China and when they did that you can end up with you know sort of the rivalry and the potential risks to the two societies and you know there's a professor of read a book wrote a book on this after we made the decision and and studied you know the the the 16 different times us in the last 500 years where we're a challenger country was challenging an incumbent world power and in 12 of those 16 times there were wars between the Challenger and the incumbent so I didn't know those statistics but I could feel it and I wanted to do something to get in the way of that so so we created a whole you know built in you know college and you know we've got students live students professors it's really amazing it's extraordinary the people that we've gotten in now it's it's sort of like the Rhodes and the marshal and you know we accept something like 4% and we get 97 percent so each one of the things I've done addresses some interesting issue like AI and the need to to basically protect society from from the kind of just just willy-nilly implementation of this powerful technology which which could end up not only doing some amazingly positive things but but can result in large-scale unemployment can I ask you about the Schwartzman Scholars because given the rift that has emerged between the United States and China and given what the underlying effort that you were undertaken is what do you tell President Trump and what do you tell the Chinese right now well I can't tell you what I'm telling everybody because that's a secret but but you know in terms of the school was you know was was endorsed by President Xi it was his first act and so you upset though about what's happening because I would say this isn't as much I mean there's the trade war is real but it seems to me that there's something much larger going on here at play which is to say the idea of us coming together which I think was hopefully the prevailing wisdom maybe even over only several years ago is now going in the opposite direction and likely to do so for a much longer time do you agree with that well III think there's no doubt that you know just to set context China in the last 40 years has grown faster than any other country I believe in world history it's it's it's an astonishing thing that what's happened there but they did it behind Terra falls behind and traditionally open markets they did it with certain types of you know uses of intellectual property and other types of things that that we don't do in in the West and we don't do in developed countries part of what they're doing just follows the normal trend of which which the United States did in the 19th century when we were little we had big tariff barriers people forget this and then you get to be a grown-up and then you drop that stuff away and and so because of the populism that's that and and and the terrible outcomes for the bottom 40% or so of people in the United States and other countries in the West that those people are have been been really a bad situation and they're angry and their anger was going to go to China so because after they exhaust targets in in in their own country and nothing changes for them then they get angry at a foreign person and this is like a pattern that always happens with populism and and so this was coming at China and you know they didn't know it and I told him I said it's not about who's in the White House this is like a problem for our society and we have to get balance back so you put this more on them to fix than on us to fix yeah because in fact they they were they they had a different economic model so so you know that they would have to change to be more like a grown up country rather than developing country and and so what what's going on is as they figure out how much they want to change how quickly they want to change we on our side of course would like them to change you know absolutely quickly on their side imagine their politics you know they'd sort of like things are working out really great for us why don't we just continue doing it and and and so that's where the tariffs came from and and now we've got two countries that look like they're decoupling which will end up damaging them long term probably us long term the emerging markets who won't sell as much to them and Europe as well which which may well go into a recession because their interest rates are so low I don't know how they stimulate themselves and if they go into recession it could look like Japan which went into a recession and basically stated no growth for very long 25 years soon so so this is a dangerous situation and and I think one of the reasons why you know they've come back to the table is is that this is not in the short-term intermediate term or long term interest of their country it's it's I don't think it's in our interest as well and it's not in the interest of the world and so because of that I think logic would suggest that that they will find a way to do steps that will start you know it's it's if there's no miracle cure for this because who would give up whatever you did that got you from no place to where you are just in one move that's never going to happen but you know we we have to get used to changes happening over time and we'll see if that happens in the short term or the intermediate term but just letting this thing run which is emotional reactions that people have and also each country has their own internal politics and we think we know ours but over there they've got them too so so it's it's dynamic it's complicated but but ultimately you know really full decoupling I think is is not productive for the world okay I'm gonna go rapid-fire because I want to get everybody involved in this in just a moment you write this about President Trump talking about emotional and tweeting but but you right from the moment Donald Trump was elected I had been getting calls from people who did not know what to make of him when they had when they made that call what did you tell them I told him not to listen to these tweets till not to listen to the tweets no because because there's just so many and there it's just it's I said you ever stated him 90 I said he'll end up controlling your news cycles and and you know and that's exactly what's happened I had the head of one of the major media companies come and see me and they say what do I do I said don't cover it why not I mean don't you think it's our job to cover it it feels like you'll be malpractice not to cover it that's what he said and I said so then you know you're gonna just be run around all the time and you know I don't think all these things are meant to be you know sort of taken seriously and you're just gonna like go all over the place and you know so so that's what that's what you know chosen to do and you know but if you don't have to listen to me just ok different question philanthropy there is a debate in this country by the way and I applaud you and I know a lot of people in this room applaud you for what you've done but there's a debate in this country about what philanthropy has done for people who give maybe you you will say this is the skeptical or cynical take but there's a there's a debate going on right now about naming rights about whether people should have the names on things whether there's green washing those is the phrase we have and obviously in this sort of age of of this Jeffrey Epstein story which is dominate so many different news cycles there's this conversation that that that charity may not be charity what do you think of that you know it's interesting because you know I've heard this and I was I was at Oxford and I didn't know that much about Oxford and somebody was taking me around and you know every college has got a name and I you know I'd go by it I think they have like 30 colleges or something and I said what what's that one no that that's the name of some business guy in the 1300s who gave that and really and you know you you go into another college and they have a library and they have these stained glass windows and you know they've got all these crests coats of arms on there I said that's very clever the coats of arms looks nice they said no no those are our donors and if you if you gave books to the library you got your name up there were in effect and and and basically almost all of Oxford except for you know whatever one of the Archbishop's gave and Henry the eighth and Elizabeth the first was was given by people and and that's the way they constructed where you know what some people would rank and certainly in the humanities number one University in the world and you know I I talked to them about this they say problem no problem this is how you build you know a university and and they have and if you go to almost any you know sort of University in the United States I mean the buildings are all named for people the professors are named the whole thing so so you know if you go to hospitals you know it's just in New York Hospital for something you know it's the Greenberg pavilion that's everything Ron Perlman's Heart Institute this one's this in you know so so you know a lot of what we've what we take for granted is you know mister frisch's museum you know it's it's it's it's what's the tradition has been a non government dominated you know type type of okay I got it I got a harder one for you you know the head of MIT you just gave him three hundred fifty million dollars yes I do he's involved in this Epstein mess do you think you should keep his job yeah I think I think what this is a complicated one anybody who gets Jeffrey Epstein just get set on fire you know you don't even have to do anything with him and says so that situation was was basically all developed with some donations that he gave after he was out of jail you know when a previous administration all of these anonymous things and so forth had nothing basically to do with the current president so so you know it's you know there's a few million dollars involved evidently and you know sort of the from what I can figure out the admissions people green-lighted taking the money you know from from one of the departments and kept it anonymous so that Epstein wouldn't get any credit couldn't build on it and and that's erupted it into you know sort of today's scandal today's Epstein scandal so you'd say keep his job I think yeah if he had been the person who green lighted all that no but he wasn't he just inherited this I think there's a at least some reporting that did it may debate some of that but let me ask you a different different question about the Business Roundtable yes Blackstone is part of the Business Roundtable Business Roundtable famously several weeks ago came out with a statement about the purpose of business and part of that new statement effectively suggested that the role in the community and the role in society and and and a number of other issues came or was the responsibility of a company almost before it got to profits I should tell you that I think a hundred and eighty out of 188 companies signed it you didn't sign it I asked Stephen minuchin their Treasury secretary last week whether if he was on the Business Roundtable if he would sign and he said he would not and so I want to know why you didn't well The Wall Street Journal didn't think it should be signed and Bloomberg didn't think it should be signed and the Council of institutional investors just four trillion dollars of money you know didn't think it should be signed so so let's let's go from signing as one issue to what they're talking about that you know the the idea that business should be concerned about their employees about their customers about their suppliers about their community and and you know sort of incidentally about profits leave profits out for the moment those four constituencies are very important and I think that all of us certainly my firm Blackstone you know has lots of programs that address that you know in terms of communities we've hired seventy-five thousand veterans because mrs. Obama asked us to do that we're gonna get to a hundred thousand veterans we've got two hundred thousand students that we've you know helped finance startups every place we go we've got you know sort of eighty percent of our employees spend at least seven hours a year one paid and time off to work for charities you know that's just in the community section in every one of these we have these very very robust things so we don't easy to sign it now no the issue is you know why are we in business we're in business because people give us money to manage because they want us to to earn a lot of money to give them back or else they would give us nothing so it's very clear to me why we're in business and and so the way this statement was written those five things are sort of equal and I have trouble managing well I don't know what I'm supposed to be doing so I know what I'm supposed to be doing which is making good investments safely and having a great contribution to these pension funds and regular people now should we do these other things sure do we do these other things sure that's not the way the statement was written it was written basically everything is equal I don't think you can manage appropriately to do that and and so we didn't sign the thing I I don't look at that as a big deal because we do everything anyhow and and so the reason the VRT could do that is that the companies that belong there which are you know I guess about 200 roughly of the biggest companies in the country because everybody's already doing it so so that's not a big deal so so in a way it's a confirmation of what people were doing our our general counsel said Steve you can't put yourself in this conflict position where nobody knows what your priority is because you can't have five priorities and trading them off on the other hand you can do all these things you know in a sensible you know yes G oriented way and we're proud of what we do I don't like having this discussion it's not as much fun to be the odd person out but the fact that you know you have all these other people from the Treasury Secretary down saying that he wouldn't sign it not because you don't believe in honoring and doing something important for all those constituencies we're voted the best place to work in finance how are our employees doing apparently okay right and and so I look at this as a little bit of a red herring okay we're gonna open up for questions final question from me and I know we're gonna run out of time but there's my favorite sequence in the entire book is about Christine your now wife this is the first date folks I thought our first date was great she thought it was weird she was expecting me to pick her up but I was working late and we were going to already close to my office so I sent the car over to get her instead I jumped in the car and said hi I'm Steve and then I proceeded to flip down the visor mirror and run an electric shaver over my space didn't make a good impression I mean I always you know you know and the car and when I got in the car I was always rushing because we didn't have a big staff and it was like 1993 and the business was exploding with growth I wasn't a great manager so I'm working you know like some Ratan amaze you know looking for cheese and and so you know I just couldn't if I wasn't working on something there wasn't anybody else working on so so you know I just sent the car over to pick my date up and you know and and we had like a thing with my driver where it got in the car he'd give me the shaver and you know because I didn't look so good and I wanted to clean up I did the fact that somebody was sitting there just didn't didn't didn't compute and I I looked over you know I was like you know in the mirror and I look to my right this person was just completely shocked and then I realized she should be I mean it was just you know like there you go and she's your wife she's Steve Schwarzman really appreciate it let's try to open it up and get a couple of questions I have gone way over time and I apologize to everybody here we will literally try to do it just a handful of questions there are some mics here and why don't we think maybe try to do two on this side and well we only let's see if we can do two or three on this side and try to sneak some in if we can and if not that's fine too just go you have a question you want to scream it out actually they're gonna probably want you to use the microphone looks like a serious question it is said that by 2050 more people will die from infectious disease due to antibiotic resistance primarily because of the current factory farming and agricultural practices and also as we know there's an alarming rise in nationalism and anti-semitism in the world especially with the Holocaust only a few years ago do you have any vision or any initiatives to both save the planet and create world peace I'm sort of doing the best I can but but I've got my limits like like we all do the ocean thing was that I know what on that note I think we could unless it sir you you going up for a question - were you taking off it's okay I don't know about the second question he's got a question on your career what if you could talk about what your primary take away from your experience that Lehmann was at the time and then reflecting on what happened to the firm very question you know how you think about it today what what lessons might be learned the second thing your gift to hugely generous give to MIT and artificial intelligence there are new technologies coming a mile a minute at the world AI robotics additive manufacturing Big Data all of these things which stand to increase productivity in the United States and elsewhere enormous li but also potentially have an impact on jobs and how do we train people so that the world everybody benefits and we don't have a greater disparity between wealth and the folks who live get left behind the first one the bottom I take this you want to take the second second if I un-check do Lehman Brothers first that's it the lessons of Lehman Brothers my goodness first you should have good governance we could have you know you want the 2008 version of Lehman or the 1984 version of Lehman or the 1993 version of Lehman went busted all three times or the 1973 version were it also went busted okay so so so basically the firm was undercapitalized and it had a trading operation which basically was not appropriately controlled and and it ended up in real financial difficulty and it was rescued the size of these institutions I went to a funeral for the I guess about three years ago for the for the president of Morgan Stanley and he became president in 1975 as Parker Gilbert and in 1957 and Morgan Stanley had seven million dollars of equity capital you can't make this stuff up and I think Lehman in 1972 was maybe double its it's incomprehensible how small these businesses were and it was easy for them to get into trouble particularly as as you know Lehman migrated into trading which was was highly leveraged and if you made a real mistake and you didn't have the right risk controls you know it was really put you in a terrible situation which was rescued always by the same thing either somebody buys you where someone puts more capital and that was the first the second question this was a I effects of a I on productivity I've committed jobs a ice-like really unbelievably you know sort of fascinating this is gonna change well this is gonna touch everyone's life you're not gonna be able to get away from this technology it'll do some amazing things like probably costs take the cost of drugs down you know drug development and in in half you'll you'll have remarkable things in education where people can be educated by machines I mean there there's one crazy thing that somebody was telling me about an MIT where you know like kids from from you know sort of lower-income and middle-income families gonna pet dogs that are like machines and the dogs can teach them all the time and the dogs will go with them everywhere and you know it's like the dog will be your friend like for real not like a dog dog but you know I've got three dogs I mean I love them they jump up on me I pet them these are different these are talking dogs and you know they'll they'll quiz you they'll brief you they'll teach you and you know the these are just little parlor tricks but but what what's happening I'll just give you one idea I had a guy come to see me about two months ago from another country and he said he said mr. Schwarz man I'd like to offer my services and help reduce your costs at your companies and we have about 200 companies that we own so I said well what what do you have in mind he said well I think we can get rid of 40% of the people in your HR and your accounting department I said how do you do that he said well it's actually very easy we just take a camera and we look at what everybody's working on their processes and then you know we stick a thing into the hard drive and then we know everything that they're doing and then poof you don't need 40% of them we can just do it and you'll save an enormous amount of money and then we're getting going on different departments and I listen to this I said well how advanced is this technology he said this technology is primitive it's there right now I you know I could do this for you you know like next week and you talk about an existential question I said where are you gonna do this he said they're about 80 countries that would work well with this and you know I'm gonna be one of the richest people in the world and I'm sitting there going oh em gee what kind of challenge is this to the society as we know it because we talk about creative destruction this ain't creative this is just destruction when you unemploy so many people so quickly and you do it globally so so the reason I'm involved with AI is one to push things forward because they're fascinating good things but the AI ethics component has to be developed internationally and the technology needs to be controlled because you can't have some of these adverse outcomes who's going to take care of all these people what is the purpose of a human once all these machines start really getting their mojo right and and so you know some of us and and interestingly the technologists who invented the internet there are such people the internet wasn't always there and it's just sort of like some thing in the ground the Navy did or something but you know somebody invented how to take it from that and I know a bunch of these people every one of them regret that they went forward with the internet because the dream they thought it was cool the dream of connecting the world is a great dream it's happened but they didn't foresee all of the destructive elements the social media the the judgement of free speech all the things that are happening as a result of the internet and they look at it and say geez I wish it hadn't happened and they don't want it to happen again with the next technology right so so this is a worthy pursuit to take the world and come up with standards and educate governments who really just very far behind to come up with things to protect society but have the benefits of what will be in this extraordinary set of technologies we're gonna get the hook so I'm gonna try to make the question in 30 seconds and you're gonna have 60 seconds to answer and then we'll get that last question in I promise okay Wow thanks for the pressure sorry I've been waiting all of my life to ask you this question so I'm thinking about money and how money is compiled and then how the gatekeepers give it out read this book call winners take all you all should read the book and it's good but and it exposes and talks about the notion of philanthropy and how is the money raised and then how it's like so how did you get all of that money to them so so call solve this problem not saying that you're guilty of that but my question is how can we have a more sustainable way in which money is accrued and so that we're not profiting and making money off of the destruction of our environment the destruction of communities so that maybe there's less philanthropy because the money is actually distributed in ways that are more equitable and then I mean the question and then the second one is the notion of whoa quashing which I talk about a lot as a digital strategist the notion that institutions and individuals act like they care about social justice issues when really they just put their money and causes just to say hey look I funded this cause look look look I care you know but not necessarily actually caring like they'll fund the environment but then we'll still have like for breeze in their bathroom which destroys the environment so how can institutions actually be more aligned with progressive change you got a thought well give me the first one the first the first question effectively is really about this book winners take all which is this idea that wealth in America has been concentrated in the hands of few not many and that effectively wouldn't I mean the book effectively makes the argument that rather than leave it to philanthropists to figure out where they should be putting that money that that money should have filtered itself into the government through taxes and other things and that that would be a more democratic approach and I I would ask you what do you think of that is that okay yeah okay yeah you know on both sides in terms of allocation money is the biggest issue for me is that the education that people get in America now is is not up to the task of helping people get the appropriate jobs and we're suffering in a way from from income inequality yes but it's really income insufficiency we've always had income inequality and but but what we've had historically is everybody's been able to have a good deal you know and and that's not the case now and a large part of it is is because our primary and secondary education system which used to be at the top of the world when I was young apparently I'm no longer young and now now now we're down I think well I'm young but now we're about number thirty in the world I'm a teacher as well as I'm you only I'm not have a country that is not prepared to compete on a global scale there is no reason for it there is no excuse for it and and it's it's it's so horrible on people who are not prepared it's it's not a failure per se of the business community if you don't get the raw material you know people who were educated so I think there's a lot of things you can do with that the Catholic schools in New York do an amazing job they've got 90% of their kids who are minorities 70% at the poverty line or below they graduate 98% of their kids and 96% go to college this is such a different outcome with the same students that I am really optimistic I also think that that teachers should be the only group of people in society who do not pay tax and and the reason is is that they are underpaid and if we want to educate our children we have to put the best troops in the field and right now there's so many alternative things that they can do that you may not have the absolute best people that you did when I was educated in the 1950s and 60s so if you gave them that special status one it's helpful for them financially but at least it's important it marks them out as special people in our society with a special role I know there's a second part of the question we're gonna run out of time so I'm just gonna get to that last question that you have right there and I apologize and and then we're and then we're gonna unfortunately have to I know they're good it's there's a bus off the stage this is last dance last dance thank you this was great I have two quick last dance questions the first is you mentioned how important it was to really understand people's problems and then when you presented solutions they would be open to hearing them at this stage of your career you certainly have the reputation and credibility that people like Trump and China will listen with open arms as you were running through the ranks though and battling the duality of insecurity and self-confidence how did you navigate the political nuance of having these ideas but want wanting people to actually listen to them rather than having a perception that you were omniscient and why should they listen to you as a young man in the industry she is a great final question yeah we're gonna leave that as the final question I I think people will respond to somebody who's you know who's is pretty sincere you know in in terms of addressing you know things and if you basically make it clear that there's nothing in it for you it's it's really just trying to help a situation and your snappy about it now nobody wants to wander around as you present grand visions you've got to be sort of an effective sales person and say you know I understand you're worrying about X or Y or Z there are four things that you can do in this situation as soon as you go into action steps you don't have to describe problems for people who already know they have them all they want to know is what are the solutions so if you put four things out and two of them are really good you got like a friend for like a long time because they've been working to try and get that situation resolved and they haven't done it so anything that you can do and you do it quickly and without emotion and you know just sort of lay it out that then they'll listen and you can help everybody all I can say is you were really great sports to be here tonight it was really nice please join me in thanking Stephen Schwarzman the book is called what it takes Thank You save us boy

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Length: 82min 17sec (4937 seconds)

Published: Tue Sep 17 2019